Bank of America Merrill Lynch Global Research discusses its expectations and trading bias around tomorrow's FOMC policy meeting.
"We expect the Fed to cut another 25bp at the upcoming meeting, bringing rates to a range of 1.50-1.75%. This would mark the third 25bp cut in this cycle. The focus will be on (1) the language used in the statement and (2) the tone of the press conference. There is no updated Summary of Economic Projections (SEP) so we will not have new forecasts. The critical thing to look for is whether the Fed keeps options open for additional rate cuts.
"Out of the October meeting, the shorter-term USD trajectory on many pairs is likely to take its cue from the US rates market. In this way, our expectation for a muted US rates response as a result of the baseline outcome we have outlined argues for a similarly muted USD response. On net, though, we think USD could modestly soften initially post-decision, as a cut is not fully priced.," BofAML notes.
"Since early this month, the US dollar has weakened to important technical levels on the combination of improved risk sentiment, the result of US-China trade policy developments and relative weakening in US data. Into year-end, we expect USD to recover on most pairs, resuming the trend higher. Thus, we would buy a potential USD dip this week," BofAML adds.